The global foreign exchange scandal surrounding rates manipulation by bank traders saw a new course of action with US authorities offering junior desk traders immunity if they support the investigators enquiry, as reported by the Financial Times. The latest news comes on the back of continued concern about the way financial markets are managed in an inter-operable world.
The report by the FT states that members of the US Department of Justice have flown over to the UK in a bid to identify new loops and information that can support their investigation. It is believed that the prosecutors are interviewing junior traders at leading banks as the ongoing investigation into the global FX scandal continues.
The FX rates probe has seen major banking institutions suspend a number of key staff members, including senior traders, amid internal investigations. The UK’s central bank, the Bank of England (BoE) suspended a staff member in March earlier this year, due to compliance reasons. Furthermore, the BoE issued a statement which said that allegations about possible rate fixing were made a number of years ago.
The latest ‘Sherlock Holmes’ technique by government officials highlights the severity of the matter as they explore new methods to unfold the exact workings of the case. FT sources cited that junior traders will be given partial immunity if they provide useful information or evidence.
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A London-based former bank trader commented to Forex Magnates anonymously: “It’s absurd that people who are under pressure and who probably won’t know a thing are being questioned, it’s the regulators who need to examine ‘what’ went wrong.”
The FX rates manipulation follows on from the Libor case which saw a number of banks face fines, although Libor reflects the UK market’s overnight interest rate, it is used in US derivatives deals and thus impacts firms across the Atlantic, affecting mortgages and other loans, the act violated American law. The US regulatory authority, the FDIC named and shamed 16 major global banks in a court filing in March 2014, these included: Bank of America, Barclays, Citigroup, Credit Suisse, Deutsche Bank AG, HSBC Holdings, JPMorgan Chase, the Royal Bank of Scotland Group and UBS.
The manipulation cases, coupled with the global recession of 2008 have dampened investor confidence in financial instruments. Marek Damski, a private investor from Lublin, Poland, explained to Forex Magnates that he finds it hard to trust the banks, he said in a comment: “All you hear in the news is problems with banks, one after the other, my money’s safe with me.”
Foreign exchange trading is the world’s most actively traded financial instrument, according to the BIS Triennial FX Survey over $5.3 trillion is traded on a daily basis. London is the world’s largest financial trading centre accounting for over 40% of trades.
Germany’s main financial watchdog commented about the FX probes during a conference earlier this year, it believes that the bulk of manipulation was carried out in emerging market currencies, e.g Asian and LATAM crosses. EMFX is playing a more significant role in the global FX markets with the Chinese yuan joining the top ten traded currencies, as per the the BIS Survey.